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Market Moves

Thinking about where consumers are going to spend
their money over the next five or ten years can indicate
potential growth industries.

Did you ever wonder how some people become very wealthy even
though they don't seem to be particularly bright or talented? In a
few cases, it's just a matter of luck or being in the right place
at the right time. But most just used common sense.

They didn't waste time on get-rich-quick schemes or waste money
on expensive cars or trying to win the lottery. Instead, many
people who later became affluent, spent their time thinking about
the best way to invest what personal resources they had â€”
however meager â€” for steady, long-term growth.

Millions of Americans have become wealthy, for example, by
starting a business and working long hours taking care of their
customers. But millions more, ordinary people with regular jobs,
carefully invested their small retirement contributions or other
savings in their spare time. Running a successful business or
finding an investment with superior growth potential both depend to
a great extent on the same thing: learning what customers are
buying and how that behavior is changing.

With that in mind, the central purpose of this column is to
provide information on demographic trends and patterns of consumer
behavior that may impact the future success of an industry or
business. This and future columns will offer the results of my
research and my personal views as to business opportunities that
are emerging because of changes in consumer buying behavior.

This column will not offer advice to buy or sell any type of
stock, bond or make any other investment. We also make no
guarantees of great wealth to anyone. But we do believe that
thinking about where consumers are going to spend their money over
the next five or 10 years can indicate potential growth industries
and reveal marketing and investment opportunities.

Target Markets

There are a few big demographic themes, such as aging Baby
Boomers, that will almost always have a huge impact. But there are
also dozens of other demographic segments â€” some big, like
Hispanics, and some small, like single dads. And there are also
hundreds of lifestyle niches, such as parents who school their
children at home or â€œsnowbirds,â€? who move to warmer
places when it gets cold.

Each of these segments can be considered a target market in need
of special products or services. Of course, every demographic group
doesn't present new business opportunities. Some segments are
incredibly small, but very vocal, like the homeschoolers. While
others, like the snowbirds, offer business opportunities only in
the places where they flock to each winter.

My rule of thumb regarding segments or niches is 5 percent. If a
demographic segment or lifestyle niche is or soon will be 5 percent
of the nation's population or households, then it's worth a look.
Otherwise, it may be an interesting story, but it's probably not
going to impact market trends.

There will be exceptions, of course. The most obvious is the
Asian population: It's less than 4 percent of the United States,
but more than 10 percent of California's population, and it has
almost doubled in size over the past 10 years. Another exception is
people with a great deal of money. It only takes a few wealthy
people spending freely to create business opportunities.

Consumer Trends

One way to gain insight into potential consumer trends is to
focus on business sectors or industries that are likely to benefit
from shifting consumer preferences or demographic changes. An
example of a shifting consumer preference is the demand for bigger
homes. An example of two important demographic trends is the
extremely high growth of the Hispanic population as well as the
senior population, ages 55 to 64.

The tricky part is to distinguish potential trends from real
trends. Just because some futurist says that â€œeveryoneâ€?
will soon be wearing clothing embedded with a location device does
not make that a trend. There must be some underlying reason, such
as the shift to casual office attire, for a change in dress
behavior by a few people to become a widespread trend.

Consumers generally spend money for a purpose, not because some
forecaster says they will. The demand for bigger homes, for
example, is fueled in large part by the increase in well-paid
professional, executive and managerial occupations where a big home
is both a status symbol and a place to entertain colleagues or
clients.

The trend toward bigger homes is not just important for
homebuilders. It's also beneficial to building supply firms as well
as home furnishings, landscaping and interior design companies. But
as the population nearing retirement age grows ever larger, we may
see a counter trend that will favor smaller, but custom-built
homes.

Money Trends

One way to uncover a new trend is to think about how people,
wealthy or otherwise, spend the trillions of dollars that power the
gigantic U.S. economy. Even a slight shift can mean a huge
difference in demand for certain products or services. Just a small
$20 a year drop in household spending on clothing, for example, can
mean over $2 billion less to apparel companies and drive the most
highly leveraged corporation into bankruptcy.

Demand shifts when demographics change either in numbers of
people or in the amount of funds available. For example, the
demographic segment of Hispanics is growing in numbers, while
another segment, senior citizens, is growing in terms of affluence.
In both cases, it's important to know that these populations are
often geographically concentrated.

The increasing Hispanic community will mean a lot to businesses
in states such as California, Texas, Florida and New York, where
there are large numbers of this ethnic group. But that trend may
not be of much significance to local businesses in northern New
England where few Hispanics reside.

In the case of seniors, or any other age group that's growing in
numbers or wealth, it's necessary to think about what they spend
more money on than other households. For people ages 65 to 74, that
includes travel, reading and medical care. They are an important
segment of the travel market so if they have more cash, chances are
they will spend more of it on leisure travel.

Whether the segment is Hispanics, seniors or another group, the
point is they are all potential customers who want or need an array
of consumer goods and services. How well their most pressing wants
or needs are served is how fortunes are made.

The accompanying chart shows the trends in numbers of households
and household income over the past five years for three important
age groups. The chart also lists several areas where their spending
is well above average. If their high rate of income growth
continues and population growth accelerates, the top spending
categories may present some fresh investment opportunities.

Peter Francese is the founder of American Demographics.
He can be reached atpeter@francese.com.

CONSUMER TRENDS FOR INVESTORS

Over the next five years the growth rate of 55- to
64-year-old households is expected to increase substantially, but
growth among 45- to 54-year-olds will be slower.